Just by way of verification, I tried my application with and without "libraries" set to point to my docroot directory -- but with extra-class-path set in sun-web.xml in both cases.
My web app registers an MBean which has an operation exposing the Java equivalent of "which", i.e. calls getClass().getClassLoader().getResources(String) for a given resource name and returns the result as a String[]. [This is really a handy troubleshooting operation to expose in an MBean if you have complex classpaths and loads of jars, etc.]
At any rate both with and without specifying "libraries", a class known to exist in both docroot and WEB-INF/lib/*.jar was found first in the jar and last in the docroot in both cases. Using "libraries" didn't have any "insertion" effect.
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